Bridging the financial gap between the sale and transfer of a home during the lockdown period

Property transactions were left in the air when the deeds office closed its door, leaving many buyers and sellers in a precarious financial situation

The period between the sale and the transfer of a home can be a very financially constricted time, often leaving sellers with no accessible capital for other expenses and if the conclusion of a property sale is even further delayed, for instance by lockdown, it can be financially crippling.

Claude McKirby, Co-Principal of Lew Geffen Sotheby’s International Realty in the Southern Suburbs, says: “With the deeds office closed, all property transactions have been suspended and many people who have already paid deposits or settled municipal arears could find themselves unable to afford additional expenses like school fees or even basic living expenses.

“In such a situation, bridging finance can be the ideal solution as it affords purchasers or sellers to have access to cash before the registration and transfer process has been completed.

“It’s a short-term loan created specifically for real estate as the current home serves as collateral to secure the loan amount.”

Andrew Church, CEO of Rodel Financial Services Pty Ltd, the largest bridging finance company in the country, explains: “As a rule, bridging finance is only advanced to sellers once they have sold their properties and the conditions of the sale have been met, with the loan period averaging 45 days.

“It is a completely separate transaction to the bond application and subject to different criteria, the most important being that the seller’s credit rating is less important than the fact that the seller has equity in their property, with the sale price less transaction costs being greater than the mortgage bond.

“We advance up to 85% of the equity in the property with the industry interest rates calculated at around 4% per month which translates to R4000 per R100 000.”

The loan is then simply repaid by the conveyancing attorney upon registration and transfer from of the net proceeds due from the sale price, leaving seller free to get on with the business of moving.

Although bridging finance is a financial loan, it is tailored to a specific market and industry only and is therefore not processed by banks or bond originators.

“Bridging finance is a very specialised field and requires a very quick turnaround time,” says Church, “which is why the larger, more cumbersome institutions do not play in this space”.

“We pay out 75% of all applications within 24 hours, with the majority of those being on the same day we receive them and we work with 2500 law firms with whom the deals are structured.”

The Bridging Finance product is very different from micro lending and also less regulated by law. Church advises that it is therefore essential to only use companies which are registered with BFASA

“To ensure and protect the integrity of the industry, the main players formulated a self-regulatory body (BFASA) which will stand until the promulgation of the new Property Practitioners Bill which seeks to encompass the many different participants in the property industry.”

He further cautions cash-strapped sellers against borrowing from attorneys who lend money to their clients.

“Attorneys cannot be money lenders in a transaction and also purport to act in the best interests of the buyer and seller. There is always a conflict of interest in this situation and unfortunately we have numerous examples to prove it.”

He adds that people seeking bridging finance during the lockdown period should not neglect to enquire about favourable rates: “Due to the disruption caused by the Deeds Office being closed, Rodel will be dropping its rate by two thirds after day 90, resulting in a considerable saving.”

McKirby concludes: “Although bridging finance is the speediest, most flexible solution for easing the financial burden of sellers when most needed, it can also be costly so don’t apply for more money than you need and take the loan for the shortest period possible while capital is being freed up.”

For more information on bridging finance, documentation, rates and available deal structures, visit www.bfasa.org.za

With interest rates being at a 50-year low, many South Africans might be contemplating whether now is the time to fix the interest rate on their home loan. Before going ahead with this decision, Adrian Goslett, Regional Director and CEO of REMAX of Southern Africa, strongly recommends that buyers carefully consider the various implications of this decision to ensure that they do not later come to regret it.